My Investment Property Portfolio Summary

Sunday, October 7, 2012

Whats Next?

I am proud of the accomplishments I’ve made in my 5 years since leaving college. As I mentioned in my previous post, I got my Professional Engineers License this year, which was the soonest I was eligible to test for it. I continue to learn in the field of engineering every day. I have my first passive income business profitable with the rentals, and a lot of learned lessons and experience along the way…with the rentals earning a net passive $1,000 a month, I am turning to my next venture of internet marketing. I do plan to expand my real estate portfolio, but things get tricky with the loans when you obtain 4 or 5 properties. I’ll write about that later. For now I want to focus on getting my internet marketing business up and running. I am excited to see where this venture goes and hopefully create another passive income stream of $1,000 a month in the next year. I would love to scale it far past that eventually, but for now, baby steps. An overall long term goal is to pay down on my real estate with extra passive income, and my personal income. As I mentioned in a previous blog post, I will be mortgage free within the next few years. I love the thought of getting this financial snowball big enough to pick up some big chunks of snow!

Rental No. 5 Renovations

After closing on my fifth rental in February, I needed to get it renovated and rented fast! I am a civil engineer by day, and I had my PE (Professional Engineering Licensure Exam) coming up in April. I was cutting it thin by buying this one, but I couldn’t pass up the deal.
This was the typical kind of rental that I like to find, only requiring new floors and new paint, along with minor repairs. Being short on time, I hired the paint out, while I installed new floors, trim, and did some repairs. This property was finished in only 3 weeks. I didn’t have time to do tile on this one, so I went with the sticky tiles that just go down over the existing floor. I made sure to buy plenty of extra tiles incase some come loose.
Having renovated this property, and the duplex before it, I have become quite good at realizing what all I need to do and what to outsource. It’s very important if you are going to renovate properties to have a good team of people that you can call to help with the work. It’s equally important that your people do a good job for a reasonable price. I never pay a contractor – they are ridiculously expensive, but I have talent that is comparable.
I ended up renovating this property for about $5,500 labor and materials. I’m very pleased with it over all. And, that test I took in April, I did in fact manage to pass!!

My Fifth Rental

My fifth and most recent rental was bought in February 2012. This rental is one half side of a duplex. With 3 berooms, 2 bathroom, and a one car garage, I stole this property at $55,000! The initial appraisal before I renovated it was $76,000.
I currently have a 2 year lease on this property for $725 a month. It costs me about $400 a month. What I love about this unit is that is is only 7 years old. Two things to be mindful of in particular, are the roof and the heating and air system. Since the house is only 7 years old, these will lasts long time, but that’s not the case with most rentals. If you are planning to hold on to a rental for the long term, these are expenses that you need to account for in the future, because they are around $5,000 each to replace, and depending on the age and condition of each, they will need replaced at some point. I bought this property with the possibility in mind of selling my house in a couple years and moving into it. With the equity in my house and the money I have saved, I could pay the loan off and be mortgage free! And for a single guy, 1250 square feet with 3 bedrooms, 2 bathroom, and a garage is plenty of space – even if I start a small family there! I will detail the renovations to this property in the next blog.

Duplex Renovations

The smartest move I ever made in renovating was to hire a painter for this property! There were several minor fixes needed, but the major tasks were prepping and painting the walls, trim, ceilings, and doors, as well as putting all new floors and some new trim in both units.
Any time I renovate a rental, I think about what is most cost effective and the most “tenant-proof,” meaning something that is hard to tear up. An example of that is laying tile floors. I taught myself to lay tile floors when I renovated my house. If it is practical, I always lay tile in my rentals because it’s a floor that’s very difficult to tear up. Worst case is a broken tile, in which case I can replace that single tile and grout around it again. For this reason I always buy plenty of extra tile and an extra bag of grout. If I need to replace either 10 years down the road, chances are that that exact match will not be sold anymore.
I like to do tile kitchens and bathrooms in my rentals, where water is likely to get on the floor. I also think a laminate hardwood floor in the living room gives the place a very nice touch. The laminate floor will last much longer than carpet and is a very attractive sales point to potential tenants. I do carpet for the bedrooms, as I believe people would like a soft and warm floor in the bedroom. I ended up having to get a new heating and air system for one of the units, but with my “HVAC guy” I got a great deal at only $3,100 parts and labor for the whole system! I ended up making both sides like brand new including the new HVAC system for only $10,000. I was very pleased with the outcome. The duplex brings $1,050 per month and costs me about half that!

Rental Number 3 & 4!

I purchased my third rental in April 2011, as well as my fourth – it was a duplex! I have to say today that this is the best property in my portfolio. I purchased the entire building for $61,100! After looking through it with my realtor, I knew I wanted it because all it needed was new floors and paint and a few miscellaneous fixes. I was so excited when I was the highest bid on it!
As with many of the properties I have bought, there were multiple offers on this one. When a foreclosure has multiple offers, typically the seller will ask for everyone’s highest and best offer. So how did I beat out the competition and still get a great deal? I took a chance, and I was right. Since the list price was $60,000, most investors are trying to get the property below list. Some will bid above list by a few hundred dollars, expecting that that will be the high bid. I have realized through my experience that you need to beat the list price by at least a thousand dollars, and you need to be above the highest bidder by enough that it matters to the selling bank. Sometimes the houses go for several thousand above list if the deal is good enough. I’m very happy with the purchase, and I will talk about the renovation process in the next blog.

My Second Rental

My second rental was a town home, not far from my house. I caught a great deal on this 3 bedroom, 1.5 bath town home at only $46,000. The previous owner had bought if for $71,400. This rental needed all new paint, all new floors, and quite a bit of trim replaced.
I did have one major issue, which of course I detected before I bought it. The hot water heater had busted at some point, soaking a large area of the first floor. Since the home is on a crawlspace foundation, the water eventually had soaked through the floor, but not before leaving a layer of mold underneath the linoleum and trim, and weakening the floor beneath the hot water heater. After ripping up all the floor and trim affected, and bleaching everywhere necessary, my brother helped me reinforce the floor joists. I continued to put tile and a new hot water heater in, spending a total of $7,000 in renovations. To this day this rental has been a great investment!

Renovations to Rental No. 1

The majority of foreclosures that are sold are in pretty bad shape. Typically, when people know they are going to lose their house, they cease to maintain it, and the foreclosure can be a process of several months to a couple years. Fortunately, my first rental house was in pretty decent shape, which made it an attractive buy for the price. There were a couple major renovations I needed to make to the house before renting it for the first time. The first, was installing central heat and air. I got a new system installed for $4,500, which is far cheaper than most companies quote. The house had baseboard heaters when I bought it, and one window unit air conditioner in the living room. The opposite end of the house would be terribly hot since there was one source of cold air, and adding window unit air conditioners was not an option since the windows were the type that slide left to right. The second major renovation, was replacing the kitchen cabinets and counter tops, and installing a back-splash.
This renovation wasn’t necessary, however I wanted to go ahead and do it as I had in mind selling the house in the next 5 years. There were a few miscellaneous renovations as well, totaling about $10,000 all together.